Those who move from renting to the homeowning game are not necessarily getting the full return out of their mortgages as a new report from Point2 found that homebuyers who trade their rent for a mortgage of the exact same amount (complete with fees and taxes) does not necessarily mean they’re getting a bigger bang for their buck. In fact, in 63 large metropolitan areas, a rent-to-mortgage transfer would translate to much less than 1,000 square feet.
On one hand, buying a home and paying a mortgage means owners can build equity and leave an inheritance; however when adding up monthly mortgage payments, home insurance and property taxes, many renters could be left feeling like renting is not just the best option, but the only option.
And according to Point2, the money might not be the worst part: in the majority of America’s largest cities, renters who would be willing to swap their rent for a mortgage could get less than 1,000 square feet for their efforts.
Assuming a 20% down payment, Point2 researched how much renters could get on the same budget based on price per square foot.
Research found that Detroit led the way when it comes to lower prices and more abundant living spaces averaging over 2,000 square feet. Cleaveland is the only other big city where renters could replace their rent with a mortgage and secure a home over 2,000 square feet. This makes for a good combination for renters who want to become owners as transitioning from a monthly rent to a similar mortgage could secure plenty of space.
Philadelphia, PA; Baltimore, MD; Fort Wayne, IN and Chesapeake, VA are next in line: The typical renters here could all secure more living space if they became homeowners. However, it’s Toledo, OH that’s the Goldilocks city: Here, the average rent and price per square foot are just right, allowing aspiring buyers the most space for the least money. If the average $881 rent is transformed into a mortgage, the newly minted homeowners could benefit from 1,231 square feet.
And, although the average rent differs greatly in Milwaukee, WI; Orlando, FL and Indianapolis, IN, these three cities are at a tie due to the differences in price per square foot. A mortgage equal to the average rent in these cities would buy a decent 1,215 square feet for renters willing to take the plunge.
While there may be some cities that are good for a rent/mortgage trade, the list of places where that is not the case is much longer. In 63 metropolitan areas, a mortgage equal to the average rent would secure less than 1,000 square feet.
With average rents above $3,000 and even $4,000, New York City, New York; Boston, Massachusetts; Jersey City, New Jersey; San Francisco, California; and Irvine, California have the highest rents. So, if renters were to pay a $3,000- or $4,000-mortgage, those amounts could secure plenty of elbow room, right? Not really.
That’s because the rent may be too high in these cities, but so is the median home price and the price per square foot. Consequently, renters who want to become homeowners in these coastal urban hubs — which are the most sought-after and desirable cities in the nation — wouldn’t get much. In fact, only Jersey City stands out with slightly more space at 920 square feet.
In Fremont, $2,758 worth of rent would only secure 506 square feet of space if renters decided to get a mortgage of precisely that amount. Renters who want to buy a home in Honolulu, HI; San Francisco, CA and San Jose, CA would get mere crumbs, as well: The average rent wouldn’t buy more than 600 square feet of space in any of these cities.
Click here to see the report in its entirety, including a breakout section on New York City.
